Murphy’s Law of Retirement

I originally published this article in December 2016 as the stock market was approaching 20,000. As of this morning the Dow Jones stands above 23,000, and your retirement savings balance is probably higher than its ever been. As a natural contrarian, I thought this might be a good time to mention Murphy’s Law of Retirement.

Murphy’s law is a familiar adage that states – anything that can go wrong will go wrong. Though the concept has been around a long time, it was officially attributed to Capt. Edward A. Murphy, in 1947. Murphy was an engineer working at Edwards Airforce base on a project designed to see how much sudden deceleration a person can withstand in a crash. One day, after finding that a vital part was wired incorrectly, he cursed the technician responsible and said, “If there is any way to do it wrong, he’ll find it.” The technician’s manager kept a list of “laws” and added this one, which he called Murphy’s Law. Later, when the project was considered a success, officials said that their good safety record on the project was due to a firm belief in Murphy’s Law and in the necessity to avoid it.

So what does Murphy’s Law have to do with retirement? In his book Retirement Portfolios: Theory, Construction and Management, author Michael Zwecher concludes that for most of us, retirement is not a spur of the moment decision but more of a premeditated plan. And often our decision on when to retire is influenced by the current state of the economy, and when the economy and the markets are booming there is usually an overwhelming sense of financial well-being. Back to our current bull market, the second longest in history, the concern is that this sense of well-being may prompt some to choose an earlier retirement. This, is Murphy’s Law of Retirement – people tend to retire just before a market downturn and thus are more likely to be unlucky in retirement.

Running into a bear market at or soon after retirement, even as little as a 10-20% decline during the first few years of withdrawals – can prematurely deplete a seemingly solid investment plan. So now that you know, what to do? If you are at, or nearing retirement, and plan to rely on your savings to provide regular income during retirement, now is the time to plan for it. A competent financial planner can help you understand your options and work with you to come up with a strategy to preserve and grow your savings.